• Wednesday, June 12, 2024
businessday logo


As Nigeria mulls separate gas ministry, oil companies want better fiscal terms

End gas flaring now, save us and future generations – Oil Communities tell govt, oil firms

Oil companies are urging the Federal Government to improve fiscal terms for gas, especially those not associated with oil drilling, as sources close to the government say there is a move to decouple gas from the petroleum ministry.

Operators say the current terms are not attractive for investments because they were designed for an era when Nigeria considered gas as something you found while searching for oil.

Over the last couple of years, the Nigerian government has been ramping up efforts to deepen gas investments. For example, the bulk of the 57 fields awarded to marginal field operators during the 2020 marginal field bid round were offshore and gas extraction seemed to be the intent.

There were 29 offshore fields awarded, amounting to 51 percent of the total fields awarded. Twenty fields were in swamps and only 5 fields were located on land.

Many of these fields have stranded gas which International Oil companies have failed to develop because of the absence of a thriving local gas market.

Read also: Gazprom to launch 1.13tcf gas facility by 2024

Oil operators are calling upon the government to improve the fiscal terms for gas. Elohor Aiboni, Managing Director of Nigeria’s leading deep-water oil and gas company, Shell Nigeria Exploration and Production Company (SNEPCo), recently called for better fiscal terms for offshore oil fields to make the country’s oil sector attractive for investment.

In remarks at the recent Nigerian Oil Gas conference in Abuja, she urged the Nigerian government to replicate the Petroleum Industry Act’s (PIA) good fiscal terms for onshore oil projects and to put in place positive fiscal terms for gas projects that are not associated with oil projects.

“The PIA has provided better terms for onshore oil reduction taxes and royalties, but action is still required to enact terms for gas that is not associated with oil drilling,” she said.

Aiboni said, “It is critical to put in place fiscal terms that will attract investments in Nigeria’s oil and gas industry.”

She said, “capital has no emotions at all; it will flow to where it will get the highest returns. It will then begin to bear fruits, lots of fruits and that’s certainly what any investor is looking for.”

“Favourable fiscal terms will also boost investors’ confidence, encouraging them to implement projects in the industry. There are factors that will drive oil and gas projects and the first is around the fiscals which is very critical; so there must be right and clear fiscal terms to support the execution of projects.”

President Bola Tinubu is yet to unveil his cabinet, but sources say the cabinet will be markedly different from what has been the norm with a proposed ministry for energy to oversee gas and power.

This aligns with the aspirations of operators. Bolaji Osunsanya, CEO of Axxela Limited, told BusinessDay in an interview that Nigeria should be looking at increasing exploration beyond the 206 Trillion Cubic Feet of gas and developing the market.

“The policy should be growth-oriented, and expansionary, we should do more than export, but use more gas locally. This means additional LNG trains to complement what the Nigeria LNG is doing. There’s no reason why we shouldn’t be more aggressive in exploiting our gas resources,” he said.

The new government is seeking to halt the departure of investors from Nigeria’s oil fields but the reality is that IOCs are ceding space to independents. This will test Nigeria’s ability to craft policies that will make the sector attractive for investments.

Experts are urging the Nigerian government to quicken the pace of implementing reforms as delays in granting approvals and taking decisions will ruin investor plans in an era where Nigeria’s African peers are announcing new oil and gas discoveries and offering competitive terms.